Baby Boomers May Be Worse Off Financially Than Previously Thought

by Nick on July 1, 2017

In the years between 2030 and 2032, a couple of interesting things are bound to happen. The National Academy of Social Insurance says that, by 2030, the ratio of Social Security beneficiaries to those who are paying into the system will rise to 45 per 100. In 2014, the ratio was 35 per 100. In 2031, the youngest Baby Boomers will turn 67 and reach what is, for now, the retirement age. According to estimates from the Office of Retirement and Disability Policy, 2032 just might be the year when Social Security’s reserves get depleted.

The Baby Boomers, those born between 1946 and 1964, are an easy target for all the voices who say they are breaking Social Security. And while Gen-Xers and Millennials might rightfully wonder what this means for them and their retirements, Baby Boomers are also worried. There’s little time for them to change their financial situation, and from how things look now, they’ll need those Social Security checks.

How Big of a Trouble Are Boomers In?

A survey published by PwC found that, in 2017, the percentage of fully employed Baby Boomers who have less than $50,000 in retirement savings was 30%, down from 37% in 2016. 16% have between $50,000 and $100,000 (up from 13%), 26% have between $100,000 and $300,000, and 27% have more than $300,000 saved (up from 24%). And while that survey doesn’t paint a pretty picture, it gets even worse when those who are not full-time employees are included.

According to an online survey performed in 2016 by GOBankingRates, the percentage of those who were older than 55 and had no retirement savings was 28%. 17.3% had less than $10,000, 15.8% had between $10,000 and $100,000, 16.5% had between $100,000 and $300,000. 22.4% had over $300,000 in savings.

If we go by the most optimistic estimates, nearly half of Baby Boomers don’t have nearly enough savings to retire on, even if one thinks that the “80% of pre-retirement income” rule for retirement is overinflated. On top of that, they will have to find a way to deal with increased costs of healthcare. Because they will live longer than previous generations, they’ll have to spread their savings over a longer period of time. And even simple things like eating modest meals add up to a lot over a 20-year period.

What Caused the Baby Boomers’ Problems?

Baby Boomers are very much aware of the trouble they’re in. The Insured Retirement Institute (IRI), which has been publishing their annual Boomer Expectation for Retirement reports since 2011, found in 2017 that 60% of Baby Boomers expect their Social Security checks to be a major source of income. Only 23% believe they will have enough money to last through their whole retirement.

The same report sheds some light on some of the potential reasons why Baby Boomers might be in such dire straits. Only 40% of them have tried to calculate how much they should save for retirement. Out of those who tried, 40% didn’t factor in healthcare costs. 80% of Boomers underestimate the share of their income they’ll have to spend on healthcare.

Bad planning and management are not the only possible reason why the generation is in financial trouble. Baby Boomers were hit by the Internet bubble, the 2008 financial crisis and the recession that followed it, and they are a generation that might be stretched too thin by supporting either their children or their parents. Or both.

The Boomers’ Response

As a response to their situation, 27% of Baby Boomers plan to retire sometime after they turn 70. 21% don’t even know when they’ll retire, and only 20% plants to retire early, before they turn 65. A study by Merrill Lynch showed that many Baby Boomers would be willing to cut back on basic expenses to increase their savings. 75% would be willing to work longer – part-time, if possible. And 91% would follow in the footsteps of Presidents Clinton, Bush, and Obama – Baby Boomers and fitness-enthusiasts-in-office.

Baby Boomers can also downsize their homes to save on costs and to get the benefit of the equity. They also have access to reverse mortgages – nearly two million homeowners qualify in Texas alone for this type of mortgage that lets them use their home without the need to make any payments.

Some of the solutions to Baby Boomers’ problems might affect the younger generations. People deciding to retire later could affect the labor market in a way that will make it harder for those who are just entering it to start creating their own retirement savings due to lower wages. But if nothing else, the Baby Boomers’ predicament serves as a cautionary tale for Gen-Xers, and Millennials especially. The moral of the tale is – learn to manage your finances, save smart, and save early. And don’t forget about healthcare.

It’s expected to get here, since most of us don’t have too many kids and our parents/grandparents had siblings. This is why we should be looking into more ways to finance our retirement or we’re bound to have a pretty nasty surprise 🙁